My January column, “What Happened in Copenhagen?” gave a short summary of the key agreements from this important conference. It wasn’t an effort to confirm or deny the validity of the science linking human activity to climate change. But some readers reacted to it with familiar arguments about whether humans affect climate. A few delved deeply into the political dimension, describing how pending legislation could affect personal freedom, U.S. constitutional rights and the overall role and reach of the U.S. government. Interestingly, they didn’t comment on global business effects, even though most Plant Services readers work in companies affected by world markets.
Each of us has a view on climate change, the underlying science and the appropriateness of proposed regulation. The popular debate shows a wide range of deeply conflicting views as to what actions are needed, from doing absolutely nothing to severe financial and other penalties for generating greenhouse gases. But, irrespective of one’s personal views, professional managers from the CEO down need to be abreast of the debate and the associated risks and opportunities.
Tough regulations will require modified process management and might increase costs. They might threaten existing markets, but also open up new ones. Limited or no regulations might give short-term cost advantages in today’s competitive markets. They also might expose companies to negative customer or stakeholder challenges. They might indirectly benefit companies from other countries where energy and climate regulation is generating new businesses. A well-managed company will have a game plan for the range of possible outcomes.
Irrespective of climatic effects, energy conservation is a good idea for security, environmental and economic reasons. The United States uses about $1.2 trillion of energy in an economy of about $14 trillion, which is about 23% of the world’s GDP. The EU spends about $700 billion to generate $17 trillion, about 28% of global GDP. For the United States, this is a productivity gap of about $600 billion.
The lack of focus on energy productivity has resulted in a loss of innovative and business leadership in most critical energy productivity-related technologies and solutions. These multi-billion-dollar, rapidly growing industries include combined heat and power, smart multi-utility network management, nuclear power, high-speed rail, light rail, solar PV, wind energy, biomass and waste to energy, efficient buildings, data centers, industrial heat recovery, hybrid auto dive trains, lightweight diesel engines and weight reducing materials.
Opinions differ as to exactly who are the global leaders, but European and Asian companies will be in a clear majority. Policy unquestionably affects this pattern.. In the late 1970s and early 1980s, the United States led or co-led in some of these (wind and nuclear are good examples). Constant shifts in policy resulted in inconsistent markets and loss of leadership. As a result, Vestas, Siemens, Areva, Danfoss and similar companies are doing good business selling solutions to the United Sates as energy productivity becomes a higher priority.
The effect on national security is substantial, with close to 70% of oil, most uranium, a growing percentage of natural gas and many critical energy technologies being imported. This isn’t the position of a country that aims to remain the most innovative economy in the world. The lengthy period of varying, inconsistent policies also has resulted in an unreliable energy and transportation infrastructure.
Environment is the third leg of energy use. From the 1960s, acid rain damage to Europe’s rivers and forests helped put the continent on a different path. In the Unites States, lower population density made this less of a pressure. Nonetheless, regulation has resulted in cleaner waterways and healthier landscapes. Whether today’s equivalent of acid rain is climate change caused by humans will only be clear in the rearview mirror of history. There’s sufficient science suggesting high probabilities human activity is affecting the climate. There’s also a body of information suggesting the opposite.
Any good energy policy will be built on the three legs of competitiveness, supply security and environment. Strategies to minimize non-productive use of energy and reduce the risks of supply interruption are nearly identical to those that would reduce carbon emissions. In a sane world, this would be the playing field for a near 100% consensus among business, environmental, and political shades and concerns.
It’s our responsibility to look at the three critical dimensions of energy use — economics and competitiveness, supply quality and security, and environmental effects — as three faces of the same dynamic. In most cases, addressing one addresses at least one other. In a constructive debate, people would look at the combined effect of legislation, policy and market transformations rather than debate them as if they were mutually exclusive.
Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at email@example.com.